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Singapore's central bank set to ease again in October policy meet: Credit Suisse

Wednesday, September 30, 2015 - 13:50
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Singapore's much-weaker August industrial production has tilted the balance to the Monetary Authority of Singapore (MAS) easing its monetary policy when the central bank next meets in October, Credit Suisse said on Wednesday.

SINGAPORE'S much-weaker August industrial production has tilted the balance to the Monetary Authority of Singapore (MAS) easing its monetary policy when the central bank next meets in October, Credit Suisse said on Wednesday.

"We now see MAS easing again in October (by Oct 14 at the latest) by shifting to a neutral policy stance, or zero appreciation. This would allow MAS to drive the NEER (Nominal Effective Exchange Rate) lower to counter the economic slowdown, while waiting for clearer signs on the outlook for growth and the labour market," its analysts said. "We expect the NEER to fall towards the bottom of its policy bands on confirmation of a dovish central bank shift."

The USD-SGD is expected to rise to 1.455 in three months and to 1.495 in 12 months. It is currently trading at 1.424 to 1.428.

Credit Suisse highlighted three factors supporting the expectation for MAS to ease its policy:

(1) Singapore's weak industrial production in August, which fell 7 per cent from a year earlier, due to weakness in areas such as electronics and marine and offshore engineering output. Credit Suisse said this implied another weak gross domestic product (GDP) decline of 0.1 per cent quarter-on-quarter (qoq) annualised in Q3, from a 4 per cent qoq decline in Q2.

(2) China's and Asia's growth outlook has deteriorated since MAS kept its policy unchanged in April.

(3) Employment growth has also slowed drastically and other details suggest the labour market has deteriorated. Singapore resident unemployment rate has inched up to 2.8 per cent in Q2 2015, up from 2.5 per cent in Q1 2015.

"Although this is low historically, the details of the labour market are weak, suggesting that the deterioration in the unemployment rate might continue," it noted, highlighting other negatives including job vacancy ratios that have come off their highs; redundancies as well as falling hours worked.

Credit Suisse expects the impact on GDP from the potential easing to be small. It has kept its below-consensus GDP forecast at 1.7 per cent and 2.4 per cent for 2015 and 2016. These compare to consensus of 2.2 per cent and 2.7 per cent, respectively.

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